Jose Sanchez-Crespo and Mike Hooton from rating agency AM Best Europe explain why Irish life is booming and give the stats on the top 20 life insurers.
A positive financial and social environment has made the Republic of Ireland one of the most attractive European insurance markets.
After a decade of steady growth, the economy is one of the healthiest in Europe - above-average GDP growth, with general government surplus over GDP in excess of 3.5% and debt to GDP at 30% (50% in 1999). This has positively impacted on the insurance sector, where the penetration rate (insurance to GDP) has increased to 9.4% (life 6.8%, non-life 2.6%) in 1999, from 7.1% in 1995.
A growing young population and a per capita income comparable to Scandinavian countries are indications of a long-term demand for life assurance-related products. The life and pension sector is enjoying huge growth, with a 30% per annum compound gross premium growth for the period of 1995 to 1999. Life premium income reached £4.7bn in 1999, an increase of 40.6% on the previous year, while the total value of life assurance protection in force was estimated at £107bn. New annual premium business in 1999 totalled £446m and single premium business £3.07m.
AM Best believes single premium business will continue to grow at double the rate (49.5% per annum between 1995 and 1999) of annual premiums, reflecting the number of wealthy individuals and the low unemployment rate.
The with-profit sector has developed quickly, with products such as the Standard Life with-profit bond reported to have taken more than £1m a day since it was launched in March. However, the demand for with-profit bonds issued afterwards, by players such as Irish Life and the Bank of Ireland, is not as impressive.
Distribution of life and pensions products is still dominated by brokers, who control almost 70% of the market, followed by tied agents (13%). AM Best says the proportion of life business sold directly will rise (currently at around 6%).
Investments of the Irish life industry are, as in many other developed markets, highly geared towards equities, which represent about 56% of total policyholders' funds. This high exposure, given the weak performance of the main equity markets, could indicate a prospective negative impact in the balance sheet of Irish-based com-panies. However, AM Best says a high proportion of this equity exposure being invested in preference, guaranteed and unit trust instruments could partially offset the negative impact.
The Irish government is being very supportive of this growing industry. The Irish Financial Services Regulatory Authority has been set up to oversee solvency and consumer protection issues for life and non-life business to make sure Ireland does not suffer any mis-selling crises over pensions and/or endowment mortgages, as has been the case in the UK. Last May, the government also introduced a new savings scheme (Special Savings Incentive Account), under which the government contributes £1 for every £4 saved. AM Best regards this initiative as positive, but says it could affect the popularity of the newly introduced Personal Retirement Savings Accounts (PRSAs), the Irish version of the UK stakeholder pension initiative, if the initial one-year availability was to be extended.
Ireland is home to a highly skilled life insurance workforce. Although the life sector is fairly concentrated, many companies have rushed to establish or re-establish operations in this market, which will allow them to work their capital base harder in a lower corporation tax environment (currently 20% and due to fall to 12.5% by 2003, compared with 30% in the UK).
But despite seemingly perfect ingredients for a booming industry, the economic recession threatening the UK and US, the decreasing demand for some products and weak prospects for the international equity markets could put a question mark on the long-term sustainability of the Irish life sector's impressive growth.